Retailer closing stores: Gap Closing Stores
Published: June 17, 2015
Retailer closing stores: Gap Closing Stores, Gap announced on Monday that it planned to close one-fourth of its stores in North America over the next few years, potentially affecting thousands of jobs, as the brand struggles to turn around a business mired in a long sales slump.
The retailer said in a statement that it would shutter 175 of its 675 Gap stores in North America, of which about 140 will close in the current fiscal year that will end in January. The closings will leave the Gap label with about 500 specialty stores in the region, in addition to Gap’s 300 outlet stores, which are not being closed.
The bulk of the stores to be closed are in the United States. Gap will also close a limited number of European locations, the company said, though it did not give a specific store count. The retailer is slated to update investors on its turnaround plans on Tuesday.
Gap also said that it would eliminate about 250 corporate jobs this year at its headquarters in San Francisco and in New York and other locations nationwide. But it declined to say how many store employee positions would be lost. The company has about 141,000 full- and part-time employees worldwide, in about 1,600 company-owned and franchise stores. It had been one of the first retailers to raise wages for its hourly workers in a recent wave of pay increases at some of the country’s biggest retailers.
With the store closings, “we feel confident that we’re going to be positioned to restore the brand and get it back on track as quickly as possible,” Art Peck, who took over as Gap’s chief executive in February, said in an interview. “We never want to close stores, but we felt this was the right decision.”
After dominating khaki and denim culture through the 1990s, Gap has stumbled in recent years, hurt by management blunders, a revolving door of executives and, by its own executives’ admission, uninspiring fashion. As with many midrange apparel retailers, both Gap and its sister brand, Banana Republic, have lost core shoppers, who were lured away by cheap chic styles offered by the likes of H&M.
In late 2012, Gap hired Rebekka Bay, a Danish fashion designer who gained attention for her COS minimalist clothing line for H&M. But her penchant for grays and blacks clashed with Gap’s happy, all-American aesthetic, and her styles were criticized as drab. In January, Gap fired Ms. Bay and eliminated the position of creative director altogether, tapping Wendi Goldman, the former head of design at the now-defunct retailer C. Wonder, as Gap’s new head of product design and development.
Gap has been at sea ever since. It reported a 10 percent drop in same-store sales for the quarter through May 2, which resulted in an 8 percent decline in earnings to $239 million. Mr. Peck has said that improvements may not be visible until next year, because the label’s merchants had already ordered many styles before the recent leadership changes took effect.
“There’s really no fashion direction,” said Jessica Bornn, a senior analyst at Merchant Forecast, which provides retail and consumer research for institutional investors. “Right now, they’re a ship without a captain.” She also said that Gap ran too many stores in underperforming malls that were weighing on its bottom line.
“The fact that they’re proactively looking to close these doors is a positive,” she said. “If they’re going to go ahead and do the closures, they need to do that with a broad stroke.”
Jeff Kirwan, Gap’s global brand president since December, said that some stores were “just not appropriate anymore,” and that a 500-store presence in North America would be a healthier footprint. The cuts at headquarters would also speed up the introduction of products, he said.
“We’re changing the way we bring product to market, taking out redundancies, efficiencies within the organization,” he said.
Gap estimates that its cuts will trim about $300 million from annual sales. Gap will also incur one-time costs of approximately $140 million to $160 million, primarily in the second quarter, from lease buyouts, inventory write-offs and the costs associated with shrinking the corporate headquarters work force.
Beginning in 2016, Gap expects these changes together to generate annualized savings of about $25 million, it said.
Mark Altschwager, a senior retail analyst at Baird, the financial services firm, said that while Gap’s store closures were devastating for affected employees, the move would help the company stabilize and strengthen its operations over time.
“The mid-tier apparel landscape is competitive and overcrowded,” he said. “With consumer traffic shifting to outlet and e-commerce channels, brands don’t require the same number of stores as they once did.”
“Big picture, the turnaround is about product,” he said. “Consumers have a lot of options on where to spend their apparel dollar. For Gap brand to win it needs to offer compelling product at a good value.”
In recent quarters, Gap’s lower-end label, Old Navy, has been a bright spot in the company’s business. Gap’s purchase of the high-end boutique chain Intermix in 2013 gave it a foothold in the luxury market, and the company made a foray into the booming sportswear category by acquiring the Athleta brand.
Mr. Peck, who previously led Gap North America and was most recently the retailer’s digital chief, said he was painfully aware of Gap’s design shortcomings.
“We know where we have issues in the assortment,” Mr. Peck said. “And we know that those issues have to do with a lack of femininity, particular silhouettes that we have that she doesn’t find flattering. And there’s a lack of optimism in the brand, which shows up as a very tight and muted color palette, and a lack of print and pattern.”
“We’ve been moving quickly and decisively,” he added. “We need to take decisions, look at the situation, then get things done and behind us.”
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